MoneySavingExpert's Money Tips Email

Martin's Savers' Masterclass
Stop the savings rip off! You can now earn up to 5% easy access or 4.88% fixed. Check what you get now. Ditch, switch & save!
Owt under 4% and you're letting them rip you off.

Millions of you are allowing banks, and some building societies, to rip you off with paltry interest. The shift in the UK's interest rate prospects means top savings rates have recently increased, with a strong set of deals paying over 4.5%. Yet many savers still leave their money at a paltry average 2%. Stop it! Make 'em pay for your business.

I was spurred to this by a question on my Question Time Podcast this week, from someone on a very low income, unable to work, and wanted to know: 'We have £115,000 in savings and earn £2,300 interest annually... do we have to pay tax on our savings?'

As I explained, I thought that was the wrong question (though I answered "likely not") - the priority is to ask "Why am I earning such little interest?" On that amount, I'd expect it to be nearer £5,000! The solution was a combination of savings accounts, mixing and matching. To help you boost your interest, here are my tips, explanations and, of course, today's best buys...

- Top easy-access savings: Up to 5% but 'variable' rate.
- Top fixed savings: Guaranteed rate up to 4.88% if you lock money away, or 4.6% with some access.
- Specialist rate boosters: 7% on regular monthly savings | 25% boost for first time buyers | 50% boost if on Universal Credit
- How the tax on savings works: and ways to reduce it

Not sure what to do with your savings? At least put it in the top easy-access account while you take time to work it out. These accounts let you put money in and withdraw whenever you want, so you get decent interest and the flexibility to move it elsewhere. The key word here is 'top', as not all savings accounts are equal.

All easy-access accounts are variable rate, so what they pay can change - often when the Bank of England base rate moves, but also at a provider's whim. Many suck you in with a high rate, then after a year or so slap that rate down (eg, when an 'intro bonus' ends) while offering new customers a better deal. You'll be notified of rate changes though, so check then - and if it no longer compares well, take your money out and put it elsewhere.

Now on to today's best buys... For the latest updates, use our Top easy-access savings & Top cash ISAs guide. There are lots of different options, so I'll start with a straightforward(ish) one, then build on it.

• The Benchmark 4.5%: Top unlimited withdrawals on large amounts. Chase (part of JP Morgan) pays 4.5%* (min £1, max £3m), though 2.25% of this is a newbie bonus lasting a year, so diarise to ditch & switch after. You can only get it via opening its free current account (it's quick, you needn't switch or use it & only requires an ID check, not a full credit check, so doesn't impact your credit worthiness). If you've already got it and the bonus is over, look elsewhere as the rate isn't good.
  
  
• Earn 5% - but only on up to £3,000. Cahoot's (part of Santander) 5% Sunny Day Saver (min £1, max £3,000). Even if you've more to save, there's no harm maxing this to £3,000 first, then using one of the others for the rest. Do note, you can put more in, it just won't pay you interest on anything above £3,000.
  
  
• Earn 4.55% on up to £20,000. Tembo's Homesaver 4.55%* (min £10, max £20,000) also includes a 1.55% 1yr introductory bonus, but this time that's only paid after a year, so you must keep the account open for a full 12mths (if the rate drops, just take everything but £1 out and you'll still get the bonus for the time you had the real amount in there).
  
  
• Earn 4.76% if you've not used a cash ISA since April. A cash ISA is just a savings account you can put up to £20,000 per tax year in, and the interest isn't ever taxable. The tax year started on 6 Apr, so if you haven't put new money in an ISA since then, your ISA for this year is unused (though do consider too if you would want it for a shares ISAs).
  
  Even if you don't need the savings tax benefit, as the rates are higher, you can just use it for normal savings.
   
  Trading 212 is 4.76%* via this link (min £1, max £20,000) with unlimited withdrawals. The rate includes a 1yr 1.16% bonus for newbies putting new money in (ie not for ISA transfers).
   
  For those wanting to transfer existing cash ISA money in too, Moneybox is 4.75% (min £500, max £20,000), again including a 1yr 1.3% newbie bonus. Yet here, you can only make three withdrawals per year, or you face an interest penalty. More options in top cash ISAs.
  
  
• Earn 6% interest on up to £4,000 via a Santander current account (and get up to £180 for switching to it). If you have a Santander Edge account you can earn the highest easy-access interest possible, but only on up to £4,000. Right now you can open it and get £30 free, or switch to it too and get £180. See our Santander Edge deal below for pros and cons.
  
  
• Or... just want the top totally straight savings rate? The top no-bonus, open-to-all, no-withdrawal-limit savings account is Hampshire Trust Bank's 4.2% (min £1, max £250k). Yet remember, it's still a variable rate, so there's no guarantee it won't change.

If you want rate certainty without needing to monitor it - this is for you. Usually you have to lock your money away, but right now there are a few options with a little wriggle room.

Fixed rates have jumped considerably since the start of the Middle East crisis, as they are set based on predictions of future UK interest rates. They were expected to drop, but aren't now. In early March, the top 1yr fix was 4.23%, now it's 4.85%.

The advantage of fixes is that you know the rate, and it sticks even if UK rates were to drop. The disadvantage is that, in addition to the money being locked away, if rates rise elsewhere you're stuck until the fix ends.

Now on to today's top rates. As I know some prefer names they know (though all have the full £120,000 UK savings safety protection), I've added a top big name as an option. All the ISAs below allow transfers in, except for Hodge Bank.

Top 1 year fixes

• Savings: MBNA (part of Lloyds) 4.85% (min £1k, max £750k) Recognise Bank 4.85% (min £1k, max £250k)
• Cash ISAs: Hodge Bank 4.67% (min £1k - no transfers), UBL UK 4.66% (min £2k), Tesco Bank 4.6% (min £1)

Top 2 year fixes

• Savings: Recognise Bank 4.85% (min £1k, max £250k) Hodge Bank 4.83% (min £1k, max £1m), NS&I 4.48% (min £500, max £1m and as NS&I is govt-owned, all money is effectively protected)
• Cash ISAs: RCI Bank 4.72%* (min £1k), Hodge Bank 4.71% (min £1k - no transfers), Lloyds Bank 4.65% (min £500)

Top 3 year fixes

• Savings: Oxbury Bank 4.83% (min £1k, max £500k), Thisbank 4.82% (min £100, max £500k), NS&I 4.45% (min £500, max £1m)
• Cash ISAs: Hodge Bank 4.66% (min £1k - no transfers), Close Brothers 4.66% (min £10k), Nationwide 4.6% (min £1, new Nationwide customers must open in branch)

Top 5 year fixes

• Savings: Oxbury Bank 4.88% (min £1k, max £500k), GB Bank 4.87% (min £1k, max £100k), NS&I 4.4% (min £500, max £1m)
• Cash ISAs: Hodge Bank 4.71% (min £1k - no transfers), Close Brothers 4.71% (min £10k), Halifax 4.65% (min £500)

How long should you fix for? After the recent rises in fixed rates, the moves mean there's now very little difference between the top rates for 1yr and 3yr fixes. To an extent, you can read that as the market suggesting it doesn't think rates will drop much anytime soon.

With that taken out of the equation, ultimately, guessing further into the future in our volatile world is impossible. So rather than basing it on externalities, look inward. The more you value certainty, the longer you should fix for.

Though a reminder: if you can lock cash away for a long time, say 5+yrs, have an emergency fund and no debt issues, on the balance of probability investing your money in a broad spread of assets should substantially outperform saving (watch how sensible investing returns compare to savings), and do read my Investing for beginners guide.

The basic savings building blocks are the easy-access and fixed accounts above. Yet there are some savings products paying more but either:

a) limit who can get them, or 
b) limit the amount you can put in. 

If they apply to you, they're worth having. Think of this like a savings 'champagne' fountain: you pour your cash into the best possible product, then when it's full, move to the next one down, and so on.

1. Help to Save: An unbeatable 50% boost on what you save, if you work & are on Universal Credit. If you're on Universal Credit (UC), and earn anything from working, you can open a Help to Save account on the Gov.uk website. Once it's open, you can continue to use it even if you stop being eligible for UC.

You can save up to £50/mth and, after two years, you get a 50% bonus on the max you had in - even if you've withdrawn the money. There's nowt else close to it. My wee graphic should help... 

After you get the first two-year bonus, you can do it again for two more years and get another 50% bonus. See full how Help to Save works. Many people who try this rave to me about it. 

2. Lifetime ISA (LISA): A 25% boost for first-time buyers aged 18 to 39. A Lifetime ISA is a tax-free savings or investment account anyone aged 18 to 39 can open (once open, you can keep it going even after you're 40). 

Its primary use is to help first-time buyers build a deposit, though it can also be used to save towards older age. It's complex, so always first read our Top Lifetime ISAs help guide, but in brief...

• You can put in up to £4,000 each tax year until you're 50 and get a 25% bonus added to it. Put the max £4,000 in and you get £1,000 a year added.
• This can be used as a deposit on your first home. As long as the property costs under £450,000, you're getting a mortgage and you've had the LISA open for at least a year. Alternatively, you take the money out when aged 60.
• Two first-time buyers buying together can have one each. That's because the LISA is an individual product. This also means a first-timer can still use it even if buying with someone who's owned before. 

The problem: If you want to take money out before you're 60, and it's not towards your first mortgage on a qualifying property, you effectively have to pay a penalty. This works out at you getting roughly 6.25% LESS than you put in (see how LISA withdrawal fees work). 

So LISAs are only good for first-timers who know they'll buy a home under £450,000. If that's you, read our full Top Lifetime ISAs guide. If you've already got the LISA's predecessor - the Help to Buy ISA - there's also help in there about which is best for you.

PS. The Chancellor had said this year she'd look at replacing the LISA. Things seem to have gone a little quiet on that amid the current political uncertainty. Yet if a LISA is right for you and you'd buy in the next few years, it's worth a look at. 

3. Top Regular Savings Accounts. Earn 7% on small amounts saved monthly. As the name suggests, the top regular savings accounts pay high interest on money put aside each month. Often the best rates are with accounts linked to current accounts (ie, you usually must have a provider's current account to open it).

These are likely loss-leaders to win or keep your banking custom - affordable for the banks, as the amounts are small; usually the maximum you can put in is up to £300/mth. 

To put lump-sum savings in, just arrange to drip-feed the maximum amount from those savings in each month. There's nothing stopping you opening a whole range of regular savers with different institutions. Here's the highest paying regular savers:

Regular Savers where you must have (or get) their current account

• Zopa*: 7.1% variable for 6mths on up to £300/mth (max £36 interest)
• First Direct* + FREE £200 for bank switchers: 7% fixed for 1yr on up to £300/mth (max £135 interest)
• Co-op: 7% variable for 1yr on up to £250/mth (max £113 interest)
• Nationwide (+ FREE £175 for bank switchers): 6.5% variable for 1yr on up to £200/mth (max £84 interest)
• Lloyds: 6.25% fixed for 1yr on up to £400/mth (max £161 interest)

There are many other bank-linked accounts paying over 5%. See our Regular Savers guide for more - and to check if your bank offers one.

Regular Savers open to all and often allow bigger amounts

• Monmouthshire Building Society 6% variable for 1yr on up to £500/mth (max £193 interest)
• Manchester BS 5.4% variable for 2yrs on up to £500/mth (max interest over 2yrs £684)

PS. Why does the amount regular savings pay feel less than it should? In simple terms, it's because you drip-feed money in rather than having a lump sum all year. See my Why regular savers are the best payers, but it won't be that much explanation.

There's a lot of confusion about tax on savings - so, to be plain...

Savings aren't taxed, but the interest earned on them is.

Yet even then, many needn't pay it, as there are substantial tax-free allowances and products you can use where the interest isn't taxable...

1. Your tax-free allowances. Best to watch my most people miss out on using all four savings tax allowances (on my YouTube channel, and while there, do subscribe for more easy explainers), which I hope is an easy way to understand it quickly. But let me take you through the allowances here too.

• Your Personal Allowance: most can earn up to £12,570 tax-free. This is how much you can earn (from anything, eg, work, pension, interest) before paying Income Tax. If your total earnings are less than that, then all your interest is therefore tax-free. For more on this, see our Income Tax Calculator.
  
  
• Starting Savings Rate: for those with low other (including work) earnings but bigger savings interest. The Starting Rate for Savings means some can earn up to £18,570 of earnings and interest combined without paying any tax on it (do click the link to read it how it works, it needs a bit of explaining).
  
  
• The Personal Savings Allowance: you can earn up to £1,000 interest tax-free each year. Your Personal Savings Allowance (PSA) is on top of the allowances above - it's the amount of interest you can earn from ANY & ALL SAVINGS without paying tax on it.
  
  - Basic 20% rate taxpayers can earn £1,000 interest a tax year.
  - Higher 40% rate taxpayers can earn £500 interest a tax year.
  - Top 45% rate taxpayers do not get a PSA.
  
  At today's top easy-access rates you'd need well over £20,000 to generate £1,000 interest, so only basic-rate taxpayers with more would pay tax (for higher-rate taxpayers, it's half that). This, combined with cash ISAs below, means all but bigger savers or earners needn't pay any tax on interest.

How you pay tax on savings if you need to. If you're sent a self-assessment tax form (ie, a tax return) to do each year, you do it via that. If not, and your interest is under £10,000/yr, you don't need to do anything - the tax office (HMRC) will simply change your tax code. If you get more than £10,000 interest, you'll need to do a tax return. See more on how to pay tax on savings interest.

2. You can save £20,000 tax-free each year in an ISA ON TOP of the other allowances. I ran through Cash ISA best-buys in the easy-access and fixes sections above. Cash ISAs are just savings accounts where the interest is tax-free. That means the interest...

- is never taxed
- doesn't have to be reported to HMRC
- doesn't count towards the interest in the allowances above (eg, the £1,000 PSA for basic-rate taxpayers doesn't include cash ISA interest).

All this makes ISAs a crucial extra allowance, which anyone who earns or saves enough to pay tax on savings interest (or thinks they may do in future) should take advantage of (though if you both save and invest, a shares ISA's tax benefits can outweigh cash ISAs).

After all, if you've £20,000 and would pay tax on it, you'd earn £950 in the top cash ISA, but after basic 20% tax just £720 in the top normal savings account (£540 after higher 40% tax, £500 after top 45% tax). 

Once you've put money in an ISA, it stays tax-free year after year. Some have £100,000s protected from tax after maxing their ISAs year after year.

Sadly, for those age under 65, the Chancellor has announced that while the total you can put in ISAs will stay at £20,000, the maximum new money you can deposit in cash ISAs will drop to £12,000 in the next tax year. This doesn't affect any money you already have in cash ISAs by then. This has been done to 'encourage younger people to invest'. 

Don't let your money fester in existing poor cash ISA rates

Too many think they put their money in a cash ISA and it's done. Not so. You've a right to transfer it to a new top payer. Yet don't just withdraw the cash - you'll lose its ISA status. Instead, apply for a new cash ISA, and as part of the application, you'll be asked whether you want them to transfer your existing cash ISA over...

- You don't need to be adding any money to do this.
- It doesn't use up your £20,000 allowance - only new money does that.
- Locked in a fixed-rate cash ISA? Use our 'Should I ditch my fixed ISA?' calc to see if it's worth switching.

3. You can put £50,000 tax-free in Premium Bonds - the prize fund rate is rising to 3.8% from July. I'm not a big fan of Premium Bonds for most people. The vast majority of those with typical luck will do better just putting money in top savings (see the Premium Bond Prediction Calc).

However, Premium Bonds' tax-free nature does mean they come into their own for people who pay tax on savings and have used up their ISA allowance. In that case, provided you're putting a larger amount in (as you need to do that to have a decent chance of winning closer to the published prize rate), they can be a good option. For a full explanation, see our Are Premium Bonds worth it? guide.